Stock markets stage modest rally as yen regains ground

A recovery by the yen from its eight-year low and the resulting rise in Far Eastern stock markets saw share prices recover modestly around the world yesterday. But there is still a view in the markets that share prices may have further to fall before they reach a floor.

The Japanese currency rose from its overnight 147.50 against the dollar to 145.90 on speculation that the Japanese central bank would intervene to support the currency. Finance ministry official Eisuke Sakikibara said the Japanese government's policy of foreign exchange intervention when necessary remained unchanged. He also promised that Japan would not trigger a global recession.

The reversal of some of the recent losses on Far Eastern markets led to strong gains in many European stock markets, with those like Frankfurt and Paris - which have fallen further than most in recent weeks - notching up strong gains. The rise in London was more modest, with the FTSE up just 0.5 per cent while the Irish market was up only five points with many dealers remaining unconvinced the recovery can be sustained.

Wall Street stocks were also on the mend early yesterday, snapping back from a three-digit loss in the Dow with the help of firmer markets overseas and the recovery in the value of the yen.

"Overseas markets are a little more stable. We had severe oversold conditions yesterday and we had emotion in the marketplace," said a dealer at one of the major Wall Street brokerages. "But we had a nice rally late in the day and things looked better overnight," he added. Last night, the Dow closed up 90.11 on 8552.96. Traders said they expect the market to consolidate as investors pick through the ruins of the past week's downturn, looking for value amid the cheapened stocks. But there is continued uncertainty looming over the market about how long the Asia financial crisis will last.

The Dow is now down about 9 per cent from its July 17th record high. But blue chips have still notched up gains of more than 7 per cent for the year.